Good day, and thank you for standing by. Welcome to NTG Full Year 2021 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. Now, I'd like to hand the conference over to Mr. Michael Larsen, Group CEO of NTG. Thank you. Please go ahead, sir.
Thank you. Welcome to our full year 2021 conference call, and thank you very much for dialing in. Let's move on to page two. We kindly ask you to read the important notice provided in this slide, and then let's move on to page number three. Here you see the presenting team of today. My name is Michael Larsen. I'm the Group CEO of NTG Nordic Transport Group. With me today, I have Christian Jakobsen, our Group CFO. Let's move on to page number four. Here you see the agenda for this conference call, which includes highlights for the full year 2021, a review of the financial performance of the group and each of the two divisions, the presentation of other key figures, and the outlook for 2022, as well as our updated midterm target.
At the end of the presentation, the line will be open to questions from the audience. Let's move on to page five. These are the main highlights for 2021, which marked the 10-year anniversary of NTG. 2021 was a remarkable year in many ways, and I'm particularly proud of the efforts of all our employees who managed to hold their head high in what turned out to be a very unusual and unpredictable year. Capacity shortage and market volatility were the main themes of 2021, caused by a range of external events such as Brexit, COVID-19, semiconductor shortage, and the Suez Canal obstruction, coupled with a very high demand for consumer goods throughout the year. In combination, this resulted in tight capacity, supply chain disruptions, increasing freight rates, and elevated unpredictability.
In spite of challenging market conditions, we managed to accelerate the momentum from previous years, and we more than doubled our Adjusted EBIT in 2021, passing the DKK 500 million mark, and delivered on our outlook for 2021 as announced on 11th of November 2021. In 2021, we completed four acquisitions within the Road & Logistics division: Cargorange, Neptun Transport, Twente Express, and LGT Group, representing approximately DKK 1 billion in revenue on an annualized basis. The integration of all acquisitions are progressing according to plan, and we are prepared for additional acquisitions in 2022 should the right opportunity arise. For 2022, we expect a net revenue in the range of DKK 7.8 billion-DKK 8.3 billion and an Adjusted EBIT of DKK 570 million-DKK 630 million.
In connection with the release of the 2021 financial report, we also provided an update on our midterm targets, and all previous targets were hereby replaced with a target of realizing DKK 1 billion in Adjusted EBIT no later than by the end of 2027. Finally, I would also like to highlight that we announced our first stand-alone sustainability report for 2021 that provides a status on the sustainability agenda at NTG, and it marks an important first out of many steps on our ESG journey that we have begun. We look forward to build on this platform in the years to come. With those words, I'll now hand you over to Christian, who will take you through the financial results for 2021.
Thank you, Michael. As Michael mentioned, we are very pleased with the financial results for 2021, where EBIT for the first time surpassed the DKK 500 million mark. On page six, you see the main financial highlights for the group, where net revenue for the full year 2021 totaled DKK 7.3 billion, up 36.9% versus the same period last year. The development of our existing business was the main growth driver, contributing with 26.5%, and acquisitions in the Road & Logistics division further contributed an additional 12.2%. While the restructuring of low-performing business areas during 2020 provided a slight revenue decline of 2.2%. Gross profit increased by 28.6% to DKK 1.6 billion, corresponding to a gross margin of 21.8% versus 23.2% in 2020.
Market volatility, capacity shortages, and increased pressures on input factor prices were the main drivers of the decline. Adjusted EBIT increased 107.9% to DKK 542 million in 2021, corresponding to an operating margin of 7.4% versus 4.9% in 2020. The development was driven by increased efficiency and scalability, as well as the effects from acquisitions and activities discontinued in 2020, which all together led to a conversion ratio increase of 12.9 percentage points in 2021. Further, Adjusted EBIT was positively affected by the net positive one-off effect of DKK 20 million in the Road & Logistics division in the second quarter of the year.
If we move to page seven, you see the summary of the key financial performance indicators, which illustrate that the gross margin development for the group was impacted by increasing pass-through revenue in the Air & Ocean division in 2021 and increasing oil and diesel prices in the Road & Logistics division, partly offset by capacity surcharges introduced throughout the second half of the year. The acquisition of LGT Group in September 2021 had a positive effect on the gross margin in the last two quarters of the year. The conversion ratio development in the Road & Logistics division was driven by the impact of NTG Group, while the development in the Air & Ocean division was a result of the slight normalization in activity levels in Q4.
The development in operating margin during 2021 was driven by increased efficiency and scalability of fixed costs, effects from restructuring in 2020, the impact of acquisitions completed during 2021, and finally, the net positive one-off effect that I referred to earlier. If you flip to page eight, you see the financial review for the Road & Logistics division. The division generated a net revenue of DKK 5.5 billion in 2021, which was 29.8% above the same period last year. The increase was related to both acquisition growth that contributed with 15.2% and organic growth of 14.5%, which was driven by the effect of surcharges introduced to safeguard existing capacity and customer relationships, but also increasing volumes and spot prices.
Gross profit increased 28.7% to DKK 1.3 billion, corresponding to a gross margin of 22.7% versus 22.9% in 2020 as a result of increasing input prices, although partly offset by surcharges introduced in the second half of the year. Adjusted EBIT increased 74% to DKK 430 million in 2021, corresponding to an operating margin of 7.7% versus 5.8% in 2020, driven by the effect of restructurings completed in 2020, acquisitions completed during the year, and the DKK 20 million one-off effect. If you flip to page nine, you see the financial review for the Air & Ocean division. The division generated a net revenue of DKK 1.8 billion in 2021, which was 65.9% above 2020.
The organic growth of 66.5% was mainly driven by elevated freight rates and, to a certain extent, volume increases. Gross profit increased 28.1% to DKK 332 million, corresponding to a gross margin of 18.9% versus 24.5% in 2020. As I mentioned before, the development was a result of elevated freight rates that resulted in increased pass-through revenue, which drove gross margins lower throughout the year. Adjusted EBIT increased 825% to DKK 112 million, corresponding to an operating margin of 6.4% versus 1.1% in 2020.
That was primarily driven by increased efficiency and the restructuring activities that we finalized in 2020 that contributed to a conversion rate improvement of 29.1 percentage points and an operating margin increase of 5.3 percentage points in 2020. If you flip to page 10, you see an overview of our key figures. On the left, you see the net working capital total -DKK 187 million as per end of December 2021. The development was mainly driven by higher cash commitment in the Air & Ocean division following longer transit time and shifting market terms.
If we go to the middle, the adjusted free cash flow totals DKK 112 million in the fourth quarter of the year and DKK 288 million for full year compared to DKK 314 million in 2020. The development was mainly driven by an increase in Adjusted EBIT, offset by an increase in net working capital commitment during 2021. Finally, to the right, you see the net interest-bearing debt, excluding IFRS 16, which totals DKK 25 million by the end of the fourth quarter of 2021 compared to 2020. The development was mainly related to acquisitions completed in 2021.
If we flip to page 11, we see the full year outlook for 2022, where we expect a net revenue in the range of DKK 7.8 billion-DKK 8.3 billion and an Adjusted EBIT in the range of DKK 517 million-DKK 630 million. The outlook for 2022 includes full year effects of the acquisitions of Cargorange, Twente Express, Neptun Transport, and LGT Group. Please also bear in mind that the results in 2021 were positively affected by the DKK 20 million positive one-off effect, which I have now mentioned a couple times ago.
Our guidance for 2022 assumes a stable macroeconomic environment with no additional material adverse events affecting regional or and global cargo volumes and trade trends. In addition to the full year outlook for 2022, we have also provided a new midterm financial target in connection with the release of the annual report for 2021. If you go to page 12, you see that the updated midterm target is based on an Adjusted EBIT margin of 7.4% in 2021, which was well above the previous midterm target of 4%-5%. As a result of this, and the overall development of the business in 2021, we have introduced a new midterm target that will replace all previous targets. We now target to deliver DKK 1 billion in Adjusted EBIT no later than in 2027.
The new target is based on a combination of organic growth and M&A financed by the cash flow and credit facilities of the company. No assumption of capital raises are included, although we will evaluate this source if an opportunity arises. Finally, the midterm guide, target is based on the assumption of a stable macroeconomic environment, and the team continuing to develop the business, establishing startups, and executing its M&A agenda. Now I will pass the word to Michael for closing remarks.
Thank you, Christian. As mentioned in the beginning, 2021 was characterized by tight capacity, increasing freight rates, and elevated unpredictability. Again, thanks to our hardworking employees and our flexible and agile business setup, we managed to stay on track in these very turbulent times and delivered on our very ambitious guidance for 2021. This was all that we have planned for today. Moderator, if you'll please open the line for Q&A. Thank you very much.
Most certainly. As a reminder, ladies and gentlemen, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to withdraw your request, please press the pound or hash key. Well, once again, it's star one for questions. Our first question comes from the line of Lars Heindorff from Nordea. Please go ahead.
Morning. Thank you for the presentation. Thank you for taking my questions. A couple of questions. The first one regarding the guidance. The revenue guidance of DKK 7.8 billion-DKK 8.3 billion implies 7%-14% top line growth. I'm curious if you can maybe give us a little bit of insight into how much of that will be organic. That's the first one.
Hi, Lars. The organic growth, actually, I think, we have around DKK 350 million is acquisitional growth, so the rest will be organic.
DKK 350 million from M&As.
Yeah.
For the recent acquisitions that you made?
Yes.
Okay.
And then-
All right. Makes sense. Yeah, no, it makes sense. It was almost DKK 280 million in the fourth quarter, the impact on the top line. I would initially
Yeah, yeah.
I would thought it would be a bit more than that.
We also have to realize that there's a full year effect of acquisitions that we made in 2020 as well, in the fourth quarter.
Maybe sort of more about sort of current trading and also what goes on in Ukraine and Russia. Maybe just an update on cargo flows, if there are anything there which sort of affects the operations also in terms of I mean, we have previously heard a little bit about shortage of drivers and also with the I mean, this comes on top of what we have also seen some of the changes in the EU regulation, which have also been affecting the flows a little bit.
If we start with the flow of the cargo, it's plus minus what we have seen for the last quarter. That's not a big change there. But with the capacity, there's no doubt about that we see a issue with the capacity on the road side especially. One reason could be the conflict in the Ukraine, Russia, but one other main reason I would say is the EU Mobility Package, which have went into force here in the start of February. We still you can say wait to see the full effect of this package, but I believe we'll see in the end of first quarter and the start of the second quarter.
There we will see the full effect of the EU Mobility Package.
If I understand you correctly, then the risk sounds like it will be more shortage of drivers. Is there a risk that could maybe put a bit of pressure on the gross margin in Road & Logistics?
We are working all the time with the clients to make sure that we can keep the capacity in the market. We will also have in mind that, again, we have not seen it come into effect still, but there is also a lot of drivers operating Russia at the moment who will not be able to operate. There will most likely be some capacity from that, these trade lanes between Poland, Russia, Baltic, Russia, who will be possible to take into the other trade lanes. It will, you can say.
Take a little bit of the capacity shortage away, hopefully.
Okay. Then in air and ocean, I know you don't disclose volume numbers and hence we are unable to do some math on yield and stuff like that. But just sort of I don't know if you even could give me a ballpark, but what I'm trying to get at here is there is, at least in my mind, surely some kind of what I call super profits, given the situation we have right now with high rates both in ocean and in air freight. I don't know if you can any way try to sort of quantify how much you believe that impact have had on the 2021 numbers. In all of
What I'm trying to get at here is to see, okay, if you assume that things will start to normalize, congestion will start to ease at some point during the course of this year, what kind of impact will that have on, of course, both the top line but also certainly on the EBIT line?
What, what you're right of, uh-
I know that's a long question.
Yes, you're absolutely right that we are assuming that due to the capacity shortage, we have to look a lot longer for finding the capacity for our clients. There we will charge a little bit more. Definitely there are some more gross profit to each file to some of the files. But on the other hand, we also have to spend a lot of time finding these files, the capacity and that means that we also spend more time within our organization to deliver. Maybe there will be a little bit less gross profit per file, probably, but we will also see that the productivity by our employees will increase.
It will be very difficult to say what is the real impact of it, but probably there's a positive impact jointly.
Okay. Lastly, getting back maybe mostly, I think this is affecting the Road & Logistics, which is the skyrocketing energy prices. I'm curious to get any kind of info on have you been able to pass this on? Price-wise, in general, have you announced price increasing recently and are you planning to do that also?
What we have in many more or less all our offers which take care of that on a monthly basis. We are actually right now working on to go from monthly to every 14 days to make sure that we can also, you can say, pay our subcontractors to make sure that we have the capacity needed in the market. It's not a big worry. We have this built into more or less all our offers.
Just to give a sort of a sense for the impact here on the oil prices, I mean, how much of your volumes are what would you call it, spot volumes, which are probably more exposed, where you need to adjust these things or and how much is, I would say, more recurring and longer term, where you have some kind of an agreement where I assume there will be sort of a pass-through automatically built into those agreements?
Almost all of our long-term customers, they have a diesel clause which is automatically regulating this. Now, as Mike said, we had to put on a diesel clause to regulate the prices on a 14-day period instead of a one-month period. Normally, spot prices, that will never be an agreed price and that means that you have to come to the price and then you will. Of course, when you're doing the new quoting, then you will say that now it's a little bit more expensive, but then you will do the quoting based on the price that you have today and where you're standing with the capacity.
I also believe that the spot prices they will be adjusted when we're sitting at the desk and knowing that now we have to pay your hauler a little bit more, then you will also charge the customer a little bit more.
Okay. All right. Well, that was it for me. Thank you, guys.
Thank you.
Thank you. As a reminder, if you wish to ask a question, please press star one on your telephone keypad. Once again, that's star one for questions. There are no further questions. I'll now turn the call back to Mr. Larsen, Group CEO, for closing remarks.
Thank you. Thank you, everybody, for your time today and have a nice day to everybody. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.